# Goodwill questions for practice Class 12 ISC & CBSE

Concept of Goodwill

# Goodwill questions for practice Class 12 ISC & CBSE

## (1) Average Profit Method:

### (a) Simple Average Profit Method

Question 1.

The profits for the last five years of a firm were as follows –

Year 2012 ₹ 40,200;

year 2013 ₹ 39,800;

year 2014 ₹ 45,500;

year 2015 ₹ 44,500;

year 2016 ₹  50,000.  Calculate the value of goodwill of the firm on the basis of 3 years purchase of average profit of last five years.

Answer: Value of Goodwill ₹ 1,32,000

Question 2.

The profits for the last five years of a firm were as follows –

Year 2015 ₹ 20,000;(Loss)

year 2016 ₹ 85,000;

year 2017 ₹ 95,000;

year 2018 ₹ 1,20,000;

year 2019 ₹ 1,00,000.  Calculate the value of goodwill of the firm on the basis of 3 years purchase of average profit for the last four years.

Answer: Value of Goodwill ₹ 3,00,000

Question 3.

The profits for the last five years of a firm were as follows –

Year 2014 ₹ 20,000;(Loss)

year 2015 ₹ 85,000;

year 2016 ₹ 95,000;

year 2017 ₹ 1,20,000;

year 2018 ₹ 1,00,000.  Calculate the value of goodwill of the firm on the basis of 3 years purchase of average profit for the last five years.

Answer: Value of Goodwill ₹ 2,28,000

Question 4.

The profits for the last five years of a firm were as follows –

Year 2012-13 ₹ 50,000;

year 2013-14 ₹ 1,85,000;(Including Abnormal Gain ₹ 35,000)

year 2014-15 ₹ 95,000; (After debiting Loss of stock by fire  ₹55,000)

year 2015-16 ₹ 1,20,000;

year 2016-17 ₹ 1,30,000.  Calculate the value of goodwill of the firm on the basis of 2 years purchase of average profit for the last five years.

Answer: Value of Goodwill ₹ 2,40,000

Question 5.

The profits for the last five years of a firm were as follows –

year 2013-14 ₹ 1,92,000;(Including Abnormal Gain ₹ 15,000 on profit on the sale of fixed assets)

year 2014-15 ₹ 95,000; (After debiting Loss of stock by fire  ₹75,000)

year 2015-16 ₹ 1,23,000;(Including interest on Non-trade Investment ₹ 10,000)

year 2016-17 ₹ 1,30,000. (Closing Stock overvalued by 10,000 at the end of the financial year 2017)
Calculate the value of goodwill of the firm on the basis of 2 years purchase of average profit for the last four years.

Answer: Value of Goodwill ₹ 2,90,000

Goodwill questions for practice Class 12 ISC & CBSE

### (b) Weighted average method

Question 6.

The profit of firm for past years were as follow :

Year                    Profit (₹)

2012-13                   80,000

2013-14                   85,000

2014-15                   90,000

2015-16                   1,00,000

2016-17                   1,10,000

The weight to be used are 1, 2, 3, 4, and 5 for the years from 2012-13 t0 2016-17. Calculate the value of goodwill on the basis of three years’ purchase of weighted average profit.
Answer: Value of Goodwill ₹ 2,94,000

Question 7.

The profit for the last five years of a firm were as follows :

Year 2002 ₹ 1,50,000;

Year 2003 ₹ 1,70,000;

Year 2004 ₹ 1,90,000;
Year 2005 ₹ 2,00,000;

Calculate the goodwill of the firm on the basis of 3 years purchases of the weighted average profit of the last 4 years . The weights assigned to each year are: 2002-1, 2003-2, 2004-3, 2005-4.

Answer: Value of Goodwill ₹ 5,58,000

Question 8.

The profits for the last five years of a firm were as follows –

Year 2012-13 ₹ 2,20,000;

year 2013-14 ₹ 1,85,000;(Including Abnormal Gain ₹ 35,000)

year 2014-15 ₹ 95,000; (After debiting Loss of stock by fire  ₹55,000)

year 2015-16 ₹ 1,20,000;

year 2016-17 ₹ 1,30,000.
Calculate the goodwill of the firm on the basis of 3 years purchases of the weighted average profit of the last 5 years. The weights assigned to each year are:
2012-13: 1
2013-14: 2
2014-15 : 3
2015-16: 4
2016-17: 5

Answer: Value of Goodwill ₹ 4,20,000

Goodwill questions for practice Class 12 ISC & CBSE

## (2) Super Profit Method:

Question 9.

The books of a business showed that the capital employed on March 31, 2022, ₹ 4,00,000 and the profits for the last five years were:

March 31 2015– ₹50,000:

March 31 2016- ₹ 60,000;

March 31 2017- ₹ 65,000;

March 31 2018- ₹ 70,000 and

March 31 2019- ₹ 85,000.
You are required to find out the value of goodwill based on 4 years purchase of the super-profits of the business, given that the normal rate of return is 10%.
Answer: Value of Goodwill ₹ 1,04,000.
Question 10.

Capital employed in a business is ₹20,00,000. The normal rate of return on capital
employed is 15%. During the year 2022, the firm earned a profit of Rs.4,80,000. Calculate
goodwill on the basis of 3 years purchase of super profit?

Question 11.

Calculate goodwill on the basis of 3 years purchase of super profit., given that the assets of the
business are ₹10,00,000 and its external liabilities are ₹1,80,000. A business has earned average profits of ₹1,40,000 during the last few years. The normal rate of return on capital employed is 10%.
Capital Employed= Total Assets-External Liabilities

Question 12.

The average net profits expected of a firm is future are ₹ 78,000 per years and capital invested in the business by the firm is ₹ 3,00,000. The rate of interest expected from capital invested in this class of business is 12%. The renumeration of the partners is estimated to be ₹ 18000 for the year. Calculate the value of goodwill on the basis of two year’s purchase of super profits.

Goodwill questions for practice Class 12 ISC & CBSE

## (3) Capitalisation Method:

Goodwill questions for practice Class 12 ISC & CBSE

### (a) Capitalization of Average Profit Method

Question 13.

Average Profit of the firm is ₹1, 50,000. Total tangible assets in the
firm are ₹ 13,00,000 & outside liabilities are ₹ 8,00,000. In the same type of business,
the normal rate of return is 20 %. Calculate the value of goodwill of the firm by
Capitalisation of average Profit method.

Question 14.

The profits for the last five years of a firm were as follows –

Year 2012 ₹ 40,200;

year 2013 ₹ 39,800;

year 2014 ₹ 45,500;

year 2015 ₹ 44,500;

year 2016 ₹  50,000. Calculate the value of goodwill of the firm by Capitalisation of average Profit method. Capital employed 3,00,000 and In the same type of business, the normal rate of return is 10 %.

Goodwill questions for practice Class 12 ISC & CBSE

### (b) Capitalization of Super Profit Method

Question 15.

The average Profit of the firm is ₹1, 50,000. Total tangible assets in the
firm are ₹12,00,000 & outside liabilities are ₹7,00,000. In the same type of business,
the normal rate of return is 20 %. Calculate the value of goodwill of the firm by
Capitalisation of Super Profit method .

Question 16.

The Average profit earned by a firm is ₹ 74,000 which includes undervaluation
of stock of ₹ 6000 on average basis. The capital invested in the business is ₹ 8,00,000
& the normal rate of return is 8 %. Calculate the value of goodwill of the firm by
Capitalisation of Super Profit method.

Goodwill questions for practice Class 12 ISC & CBSE

Question 17.

Calculate the value of goodwill on basis of 3-year purchase of average profit for the last 5 years. The profit of last 5 year is as follows:

2014-15    ₹ 2,50,000
2015-16    ₹ 3,00,000
2016-17    ₹ (50,000) Loss
2017-18    ₹ 4,50,000
2018-19    ₹ 2,60,000

• During the third year, goods destroyed by fire ₹ 4,00,000. Claim received from insurance company ₹ 1,50,000.
• During the fifth year, income from investment ₹ 50,000.
• During the forth year, income tax refund ₹ 60,000.
• During the fifth year, closing stock over valued by ₹ 70,000.

Calculate the value of goodwill.

Ans: Value of Goodwill₹ 7,68,000.

Question 18.

Goodwill of the firm is to be valued on the basis of 3-year purchase of weighted average profit. Weights assigned to each year would be year ended: 31, March 2015 – 1; 31, March 2016 – 2; 31, March 2017 – 3; 31, March 2018 – 4; 31, March 2019 – 5.

Profits for the year are as follows:

31, March 2015 – ₹ 1,00,000
31, March 2016 – ₹ 1,20,000
31, March 2017 – ₹ 1,80,000
31, March 2018 – ₹ 50,000
31, March 2019 – ₹2,00,000

• Abnormal loss during the year ended 31, March 2018 ₹1,00,000.
• Overvaluation of closing stock during the year ended 31, March 2019 ₹20,000.
• During the year ended 31 March 2015, abnormal gain ₹10,000.

Calculate the value of goodwill.

Ans: Value of Goodwill₹4,74,000.

Goodwill questions for practice Class 12 ISC & CBSE

Question 19.

A and B are partners. They admitted C for 1/4 share in profits. For this purpose goodwill is to be valued at three year’s purchase of super profit.

The following information is provided to you.

A’s capital             ₹5,00,000
B’s Capital            ₹4,00,000
General Reserve  ₹1,50,000
Profit&Loss A/c  ₹30,000(cr.)
Sundry Assets      ₹12,00,000
Creditors              ₹ 1,20,000

The normal rate of return is 15% p.a. Average profits are ₹2,00,000 per year. You are required to calculate C’s share of goodwill.

Ans: Value of Goodwill ₹ 1,14,000 C’s Share of Goodwill ₹28,500.

Question 20.

The average profit of the firm is ₹48,000. The total assets of the firm are ₹8,00,000. Value of other liabilities is ₹5,00,000. The average rate of return is ₹12%. Calculate the value of goodwill from capitalization of average profit method.

Ans: Value of Goodwill₹1,00,000.

Question 21.

Calculate the value of goodwill,

1. On the basis of 2 Year purchase of Average Profit.
2. On the basis of 3 year’s purchase of Super Profit
3. On the basis of capitalization of average profit.
4. On the basis of capitalization of Super Profit.

1. Capital Employed ₹8,00,000.
2. Normal Rate of Return @10%.
3. Profit for Last 5 years
• ₹89,000
• ₹1,11,000
• ₹1,60,000
• ₹2,40,000
• ₹1,50,000

Calculate the value of goodwill.

Ans:Value of Goodwill 1) ₹3,00,000
Value of Goodwill2) ₹2,10,000
Value of Goodwill3) ₹7,00,000
Value of Goodwill4) ₹7,00,000

Question 22.

HINT: Actual Capital Employed = Total Assets (excluding goodwill if existing in the Balance Sheet, non-trade investments, and fictitious assets) – outside liabilities.

Ans:  Value of Goodwill ( i) ₹33,000
Value of Goodwill (ii) ₹1,10,000

Question 23.

Aastha, Asha, and Babita are partners sharing profits and losses in the ratio of 3:2:1 respectively. From 1st April 2022, they decided to change their profit sharing ratio to 2:1:3. Their partnership deed provides that in the event of any change in the profit changing ratio, the goodwill of the firm should be valued at three years’ purchase of the average super-profits for the past three years.

The actual profits and losses for the past three years were:
2021-22 Profit ₹ 40,000.
2021-21 Profit ₹ 30,000.
2019-20 Loss ₹ 10,000.
The average capital employed in the business was ₹ 1,10,000; the rate of interest expected from capital invested was 10%. You are required to Calculate the value of goodwill at the time of change in profit sharing ratio.
Ans:  Value of Goodwill  ₹27,000

Question 24.

Rita, Nina and Mita are partners in a firm sharing profits and losses in the ratio of 3:2:1. Mita dies on 1st April, 2017. On the date of her death, it was decided to value goodwill on the basis of two years’ purchase of weighted average profits of the firm for the last three years.

The profits of the last three years and weights assigned were:

Year                                Profit ₹                                                                            Weights assigned

2014 –15                     30,000 (including gain from speculation ₹ 10,000)   1
2015 –16                     80,000                                                                                  2

2016 –17                    1,00,000                                                                                3

Calculate the firm’s goodwill on the date of Mita’s death.

Ans:  Value of Goodwill  ₹1,60,000

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